An exchange balance turned out to be a claim on a company

Inherited archive entry · retained from the earlier edition. Its factual, legal and policy claims have not all been reverified for 19 September 2026. Research scope.

What the record establishes

FTX Trading filed for Chapter 11 bankruptcy on 11 November 2022. A month later, on 13 December 2022, the SEC filed a complaint, summarised in its own press release, charging Samuel Bankman-Fried with defrauding FTX equity investors, who the SEC says contributed more than $1.8 billion since May 2019. The complaint describes a scheme to conceal the diversion of FTX customer funds to Alameda Research, an affiliated trading firm, including what the SEC calls an 'essentially unlimited credit line' for Alameda funded by customer deposits and exemptions from the platform's own risk controls. A DOJ case page records that Bankman-Fried was indicted on eight counts on 13 December 2022, convicted after trial, and sentenced by Judge Lewis Kaplan on 28 March 2024.

What a deposit on an exchange actually is

Customers who funded an FTX account believed, reasonably given the platform's own marketing, that they held crypto assets safely stored by the exchange. What the SEC's complaint describes is closer to an unsecured loan: customer funds moved to Alameda, an affiliated company, and were used there for the firm's own trading, investments, and other purposes, without customers' knowledge. An exchange balance is a number in a database until the platform actually delivers the underlying asset; between deposit and withdrawal, that balance is a claim on the company holding it, and the value of that claim depends entirely on the company's ability to honour it, not on the market price of the asset itself.

The boundary of the record

The SEC's complaint and the DOJ's charges describe what investigators alleged and what a jury found; they do not, by themselves, establish every detail of how funds moved inside FTX and Alameda, much of which remains the subject of ongoing bankruptcy proceedings to identify and recover assets for creditors. What is established, by conviction and sentencing rather than allegation alone, is that Bankman-Fried was found guilty of wire fraud, securities fraud, commodities fraud, and money laundering conspiracy charges connected to the misuse of customer funds, and sentenced to 25 years in prison.

Questions to carry forward

• Does an exchange separate customer funds from its own or an affiliate's operating capital, and how would a customer verify that?
• What happens to a customer's claim if the company holding their deposit becomes insolvent before they withdraw?
• Is a platform's stated risk-management system independently audited, or only described in its own marketing?

The collapse and the conviction are two different kinds of record: one is a company's insolvency, the other is a court's finding about the conduct that caused it. Both rest on the same underlying fact, that a customer deposit was never quite what it appeared to be.